George Cohon, renowned businessman and founder of...
If you can't make your Canadian franchise dreams happen because of funding, you do have options in the form of loans. Naturally, this move does come with risks, so you need to be aware of the following common financing mistakes you'll want to avoid.
Not creating solid personal and business budgets first
It goes without saying that you need to create a good budget for all the expenses related to your franchise, including payroll, inventory, overheard and your location lease. You also need to keep in mind that your budget should include your salary and a plan for unexpected costs. When you initially launch your franchise, you probably won't make a profit; that takes time. Your first-year budget should cover all expenses, and that includes what you are paying yourself so you don't find yourself running out of money.
Being unaware of your true net worth
One common franchise criteria is your net worth, or how much money you have access to that you can invest in your franchise. The higher your net worth, the more opportunities you'll have. Make sure you know what your true net worth is so you're able to fully leverage it and cover any gaps.
Failing to explore all your financing options
Not all franchisees have the money to fully outfit a brand new business, and even if you do, you may want to take out a loan to conserve your cash. You've got more than one option when it comes to your financing. The franchiser may offer funding, and there are banks, credit unions, qualifying retirement accounts and the Canada Small Business Financing Program. Take the time to fully explore all of your options before making a final decision. Different lenders have varying criteria and terms, and you never know how much you may save simply by comparing all your offers.
Poor or nonexistent profitability timeline
There is no one way to estimate exactly how long it will take for your franchise to become profitable. However, you can get a general idea by talking to other franchisees in the same system about their experiences early on. You can then use their information to help guide your budget making.
A business loan for your franchise is something you'll have for the future, so it's really important to get it right the first time. Even if you're really excited about your opportunity, take a deep breath and run all the numbers first!